How strong is YOUR plan? Here are the financial plan essentials.

Many people need clarification as to what Financial Planning entails. While it looks different for each household, here are the Financial Plan essentials that must be addressed. 

RISK MITIGATION:

• • Life Insurance: 10-16 times your gross income if a life insurance need exists
    

     

    • • A life insurance Needs Analysis can help you determine your specific need

• • Health Insurance: at least $1M lifetime cap (pre-Affordable Care Act)

• • Disability Insurance: (if after-tax dollars) 60-70% of gross income

• • Property Insurance (home & auto): policies covering FMV

• • Long-Term Care: policy w/ daily benefit for a nursing home, home care, or help with activities of daily living (ADLs), w/ inflation protection

SHORT-TERM SAVINGS & INVESTMENT:

• • Emergency Fund: 3-6 months of non-discretionary expenses; funds should be kept separate from daily used checking or savings accounts—non-risk assets (not invested). Non-discretionary expenses are the ones that remain even if you lose your job (mortgage, utilities, groceries, car payments, property taxes, insurance, etc).

• • Housing Ratio: mortgage payment (incl. principal, interest, taxes, insurance) <28% of your gross income

• • Housing Ratio + All Debt: should be less than 36% of gross income

• • Debt Analysis: GOOD= asset’s useful life is greater than the loan’s term; REASONABLE= ex. 30 yr mortgage or 5 yr car loan; BAD= too much monthly credit card debt

LONG-TERM SAVINGS & INVESTMENT:

• • Education Funding: save $3k/6k/9k per year for 18 years, depending on public/semi-private/private

• • Retirement Amount: at age 62/65, should have 16x the amount of annual income needed at retirement

• • Savings Rate: saving 10-12% towards your retirement goal (education funding is separate)

• • Return on Investment: Diversified, long-term investors should expect an 8-10% return

• • Risk: Measured by standard deviation (volatility and variance); the standard benchmark of a diversified portfolio is 8-14%

LEGACY NEEDS:

“The Big Three”

• • Will

• • Durable Power of Attorney for Health Care

• • Advanced Medical Directive

IMPORTANT NOTE: While this list is the financial plan essentials, the specific needs and ranges vary significantly based on your unique needs. Too many people hesitate to seek financial advice, and this list is intended to nudge those individuals into seeking help to set up their plans. Contact your professional advisor to determine what’s right for you.